Fecha Publicación: 14-11-2022
More private lending is driving infrastructure projects in Latin America and investors are particularly keen on energy assets with an ESG component, according to panellists at Latin Lawyer Live: Regional Project Finance.
The event, held yesterday, was hosted by Milbank and co-chaired by the firm’s partners Daniel Bartfeld and Carolina Walther-Meade, as well as Pablo Sorj, partner at Brazil’s Mattos Filho.
In the first panel of the day, lawyers, bankers and private creditors from the US and Latin American examined how current world events have shifted the demand for infrastructure across Latin America, leading to more private credit lending.
Private capital groups are slowly but steadily replacing banks as the main sources of credit to fund projects in the region. Abraham Prada, investment banking executive director at JP Morgan, said that private investors are making projects move faster, which is helping to close the infrastructure gap in the region. Energy projects that have an ESG component have become the main source of interest for private investors in the region, he added.
According to Marcelo Domeniconi, principal in the capital markets division of private equity group KKR, the growing interest in Latin America from private investors is behind the rise in investments in the last couple of years. “We have seen an acceleration in energy investments and digital infrastructure projects in Latin America as a direct result of the covid-19 pandemic,” he said adding that the market is becoming more competitive and funds for projects are landing quicker.
Nikola Simic, principal at US investment group Carlyle, agreed with Domeniconi, explaining that the global energy crisis and market uncertainties in other parts of the world have made investors look for opportunities in Latin America. “The conflict in Ukraine has affected the market and a lot of infrastructure spending has changed based on the demand, including renewable energy,” he said.
The second session of the day covered the resurgence of liquified natural gas (LNG) projects in Latin America. Panellists discussed where they expect to see the most activity in the region, as well as the challenges associated with the lack of infrastructure in place to allow for the transportation of LNG.
Miriam Signor, partner at Lefosse, said that the Brazilian LNG market is still in its early stages. “Historically, Brazil has always been an importer of gas from neighbouring countries, although it has its own reserves, because the country doesn’t have the infrastructure necessary to utilise its own stocks,” she said. Signor added that investments in the sector will likely grow once there is substantial demand for natural gas in the local market.
However, Brazil’s current energy landscape makes for a great investment opportunity, said Isabella Saval, the executive director of the new energies and natural resources division at Sumitomo Mitsui Banking Corporation. “We see great opportunity for investment in Brazil, because the country has the natural resources, but they still don’t have the infrastructure to move them,” said Saval, adding that the group sees investments in natural gas, LNG and related infrastructure projects as a key factor in the transition to green energy. The lack of infrastructure for LNG transportation, unfortunately, makes it more convenient for countries around the world to utilise less green energy sources, she said.
More broadly, the interest in LNG is growing across the region. “The return of LNG is partially the result of the energy crisis,” said Leon Varela, the managing director of energy and infrastructure finance at SG Americas Securities. “We are seeing an increased demand for natural gas, which we consider to be a transition fuel for future greener options,” he commented, adding that the projects need to be built in strategic, efficient and profitable locations to attract investors.
In the third panel, Mattos Filho’s Sorj opened up the discussion about the use of multilateral financial institutions, development banks and state funding to back the construction of infrastructure projects in Latin America.
Jorge Kamine, partner at US firm Willkie Farr & Gallagher LLP, spoke of the benefits of having projects with multiple international investors. “The great thing about tapping into blended finance is that it brings the need to be mindful of the different institutions and the way they operate,” he said, stressing the importance of ESG frameworks when doing multilateral work.
To facilitate lending in Latin American energy and infrastructure projects, multilateral institutions are increasingly looking for ways to provide funding in local currencies, and not only in US dollars. One financial institution doing that is the US International Development Finance Corporation (DFC). “Originally, we were an exclusive US dollar lender but now we have structures that allow us to do business with local currencies, which is going to be helpful for many Latin American countries going forward,” said Jeremy Bennett, the managing director of structured finance at DFC.
Panellists in the fourth session, which was moderated by White & Case LLP partner Thomas Pate, analysed the development and financing of projects in Latin America’s growing renewables sector, including which jurisdictions are currently the safe bets for business opportunities.
According to Fernando Gonzalez, the CEO of Grupo Cerro, Chile stands out in the region thanks to its economic and legislative stability, which makes it a reliable option for creditors looking to invest in green projects.
That view was shared by other panellists. Emilio Fabbrizzi, managing director and Americas head of renewables and infrastructure at DBN Markets, argued that Chile will likely continue to be among the most attractive countries for renewable investment going forward. He also highlighted Uruguay as a stable and predictable political and economic landscape and attractive market.
At the other end of the spectrum, speakers raised their concerns about Mexico, where private investments in the energy sector have been blocked by the current administration. “We would like to do more work in Mexico, but the situation is not ideal,” commented Fabbrizzi. Maureen Ryan, GC at Atlas Renewable Energy, also pointed to the challenges posed by the country’s current government. “The unfortunate thing with Mexico is that we don’t see much happening there in the next few years unless a change of regime and regulations happens,” she said.
The conference concluded with a panel focused on the outlook for the year ahead.
John Greenwood, managing director at Goldman Sachs, said that although trends in the financial market have been mostly negative over the past couple of years, he has a positive outlook for 2023. “I don’t believe that next year we will see a return to 2021 levels, and we expect to see activity in some Latin American jurisdictions like Brazil, Chile and perhaps even Mexico,” he commented.
This perspective was shared by Tatiana Mendes Catta Preta, the managing director of the project finance division at Japanese bank MUFG, and Jean Valery-Patin, the managing director and head of project finance at BNP Paribas, who also stressed market commitments to sustainable investments, which will play an important role in project finance investments in the year ahead.
More coverage of the event will be published in upcoming briefings.
